The New Overtime Rules Are a Big Deal. Here’s Why.

The overworked and underpaid American workforce has something to celebrate.

July 2, 2015

Millions of Americans just got a little more reason to look forward to staying late at work. The Obama administration has revised the national overtime rules to entitle nearly 5 million workers to the right to earn 50 percent more than the base wage for each hour worked in addition to the standard 40-hour week.

The proposed rule, announced this week by the Department of Labor, would raise the threshold at which certain professionals qualify for overtime coverage under the Fair Labor Standards Act (states have a variety of different overtime protections). The administration would more than double the cut-off from $455 a week to $970 a week. Basically, a lower-level retail-chain manager earning a modest income of $50,000 a year or less could qualify for time-and-a-half.

The original overtime threshold has grown outmoded over the past few decades, largely because inflation has eroded it by nearly 60 percent from its peak value. The new threshold reflects more realistically the kind of compensation levels that many people categorized as “managers” today are earning in service industries like retail and hospitality. Working behind the counter at a dollar store or running a gas station, their daily duties are actually more akin to regular front-line service jobs than the stereotypical “white collar” professions. The vast majority of the workers affected are aged 25 or older, and most have some college education. And, reflecting a racial and gender bias even in the professional classes, the rule would disproportionately affect women and people of color.

The expansion of overtime through the pending executive rule making would set off a number of dynamics in the workforce. As the labor cost of overtime hours grows, employers might calculate that it’s more cost-effective to hire new workers to do that work or to turn a few part-time co-workers into full-time staffers to even out duties across the workplace. Ideally, the redistribution of hours toward the standard 40-hour week would provide for a more rational schedule for all, especially in industries like retail, where erratic part-time hours and on-call shifts are the norm.

Although industry groups argue that this will impose undue burdens on employers and could drive down base wages, advocates say that overall, the rule would discourage the exploitation of lower-level managers and would benefit workers. According to Ross Eisenbrey, vice president of the Economic Policy Institute, “Salaried people who are currently working overtime will work fewer hours. Their hours will be shifted to hourly workers, paid less, who need the work. It’s a win win for the workforce.”

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The shift toward calculating wages by hour in order to pay salaried workers overtime has raised concerns that overtime reform would decrease scheduling “flexibility” for some salaried workers. But for middle management, the workday is a tough slog even without a rigid schedule. An EPI analysis of lower-paid “white-collar” workers found that, “Contrary to a common assumption, salaried workers at the affected pay levels appear to have no more ability to take time off for personal or family matters than do hourly workers at the same annual earnings levels.” So a retail-store supervisor who has to put in extra hours for opening, closing, and payroll each week won’t really see a change in how she spends her workday, she’ll just benefit from being paid properly for work she would have done anyway.

Though expanding overtime helps, it doesn’t resolve the crisis facing a workforce in which people are pushed to overwork themselves for less and less pay. In the absence of a dramatic rise in base wages, supplementing low pay with more generous overtime benefits can only go so far. Indeed, numerous studies have shown that we’d benefit from not working so much overtime, since long shifts are associated with decreased cognitive performance, fatigue, and injury risk.

But even if extra work time gets paid better, couldn’t it be better spent? Damon Silvers, director of policy and special counsel at the American Federation of Labor, explained on a conference call following the announcement that the overtime gap speaks to deeper inequity in the labor system. “The working people who’ve been denied the protection of the overtime laws over the years…have been put in the position where their employer can push them to work longer and longer at the expense of their family commitments.”

Expanded overtime was complemented by another major reform announced this week: paid sick days. Following legislative reforms in many cities and states, California and Massachusetts have just enacted “earned” sick day policies covering 7.5 million workers, letting them take paid time off to tend to illness, seek medical treatment, or care for a sick loved one. Paid sick days, as well as more generous overtime benefits, are part of an array of benefits that local and federal policymakers are exploring to make it easier for families to earn a steady living in a precarious economy. Paid leave addresses the value of workers’ time in another way, off the clock: When their income is maintained even on days they are off work, that signals workers are valued not just as labor but as people who contribute to a collective enterprise.

The policy debate on overtime and sick-leave benefits is orbited by a more philosophical labor discussion: the idea of a universal basic income. The polar opposite of our convoluted wage-and-hour calculations would be simply getting paid a guaranteed salary just to live. Maybe one day, instead of choosing between working to live, or living to work, we can just opt for each according to need.